IT'S ONLY A MATTER OF TIME

I've been around this retail block once or twice now. With the economy squeezed by a tight credit market, and the average "Joe" consumer cutting way back on their spending, it's just a matter of time before the retail landscape is altered significantly.

The transformation is already happening. Just today, Stock Builders announced plans to shutter 86 stores and layoff as many as 3,000 people. This comes on top of restructuring that company had already implemented over the last two years.

Another Home Improvement stalwart, Home Depot, announced in May it was closing 15 under performing locations, and shelving plans to open 50 stores this year.

It's not just the Home Improvement industry that is feeling the effects of the constraints. Other retailers are finding it very difficult to survive.

In the last 14 months, several companies have either Liquidated, or are in the process of liquidating their assets. CompUSA was the first, calling it quits last year. Mervyn's, a former Target subsidiary, announced this week it was closing all of the company's remaining stores. Linen's N Things also threw in the towel this week. Their remaining stores should be closed within 60 days. Sharper Image liquidated all of its brick-and-mortar stores. Their new strategy is to reinvent themselves as an online retailer.

What about the future? With this Christmas shopping season expected to be one of the worst in at least 17 years -- if not decades -- there will most likely be many other retailers who either have to downsize, file for Chapter 11 Reorginization, or close all together.

Here's my list of the most likely retailers to be effected:

CIRCUIT CITY

This once powerful electronics retailer was the go-to place for all things electronic. Their dominance in the 1980s was without dispute. Today, however, Circuit City has not only become the second-run to Best Buy, it has lost ground to retailers who have stepped up their electronics offerings. Wal-Mart and Target have increased their electronics footprint. While neither of those discounters can provide the knowledge of Circuit City, Average "Joe" customer who just wants a 22" Flat Panel for his shop or study isn't likely to make it into The City.

Horrible mismanagement from the top has also led to Circuit's downfall. The firing of higher-paid more knowledgeable staff in 2007 may have exacerbated the situation for the company. Instead of customers being able to tap into a 20-year veteran's knowledge, they instead are tapping into $7.25/hour High School Senior Jimmie, who is more concerned about his date tonight than selling the customer an entire package.

Stock price as of today: .26 cents. An article Monday in the Wall Street Journal cited the company is looking at shuttering upwards of 150 of its stores to avoid bankruptcy.

My assessment? Circuit City is done. Shuttering 150 of its stores will not keep it out of bankruptcy. With a tightening credit market, it is becoming less likely the company will be able to secure financing for a Chapter 11 filing. If that financing isn't found, Circuit is likely to liquidate in early 2009.

BLOCKBUSTER

The irony of Circuit City's demise is Blockbuster. This company actually tried to force a merger with the electronics retailer in March of this year. And the courtship got ugly. Circuit attempted sternly to avoid any merger.

Ultimately, with threat of a board ouster from shareholder activist Carl Ichan, Circuit was forced to open their books to Blockbuster. If there was ever a question of just how bad Circuit City was in financially .... it could probably be determined from Blockbuster's decision to pull out of the merger request in July.

Blockbuster needed Circuit City. They needed something. The idea, I believe was a good concept: Merge the two and transform Blockbuster into a 21st century download and portable entertainment device mecca.

The facts are just piling up as to why Blockbuster will have to significantly downsize in 2009: (1) Netflix is killing them. Blockbuster still can't seem to get the online/home movie delivery service numbers anywhere close to what Netflix is able to do; (2) Wal-Mart can sell me the DVD for $10.00. Why would I want to pay $5 to rent it?; (3) RedBox. This $1 rental service is convenient and continuing to show up in convenience stores, grocery stores, and other obscure locations; (4) The digital age. Netflix is already allowing customers to download movies to their home computers. Services such as Tivo are doing the same. Does anyone really think we're going to be keeping bulky DVDs for our home when a device like the IPOD revolutionalized the way we store music?

Stock Price: $1.30. My assessment: 2009 will be the year Blockbuster ultimately shrinks by 1/3 of its current size. That will be the beginning of furhter downsizing because of loss of market share and visability. ***UNLESS*** There is one scenerio which could turn Blockbuster's fortunes around: If the company is able to implement the merger strategy they were contemplating with Circuit City on a stand-alone basis.

The theory here: Blockbuster could reinvent their stores to provide services such as IPODs and digital media. By refocussing on the customer of the 21st century with a dramatic decrease in the number of DVD titles it carries ... Blockbuster could become the next Best Buy. Regardless of the company's transformation into this arena ... I still look for significant store closings in the new year.

SEARS HOLDINGS

Hedge-fund investment guru Eddie Lampert's biggest gamble is turning out to be his biggest gaffe. Both Sears and Kmart continue to see their earnings tumble. While this company is still making money, it has become less relevant to the consumer. Scratch that -- Sears has become less relevant. Kmart has become totally irrelevant.

Eddie continues to allow minimal investments in the Sears stores. While Sears gets a bread crumb or two to enhance its Lands End offerings, Kmart gets nothing. Like a dying, abandoned orphan in a third-world country, Kmart's nose is running, flies are swarming, its body is decaying (literally) before our very eyes.

Between them both, Sears and Kmart share a vast amount of real estate. Encompassing more that 3,400 stores in the US, there's just too much saturation to keep them all open.

Here's the kicker: I've never believed Eddie Lampert wanted to run these two companies as true retailers. I have always believed Lampert wanted to divest this vast real estate empire to capitalize on their value. The problem? The real estate market crashed.

Eddie's problem now: hold 'em or fold 'em? While I do believe he will sell off his real estate properties ... it's going to take some time. Still ... non-performing stores will become a drain on Eddie's balance sheet. The biggest drain will become Kmart.

Stock Price: $49.98. My assessment: Kmart will be cut in half in 2009. Sears will also loose about 50-100 stores. Look for a minimum of 400 of Kmart's remaining 1,400 stores to shut their doors -- probably no later than June. Others will follow. Whole markets (like the Triangle) will be abandoned. 52 weeks ago, Sears Holding's stock sat at $139.50. The stock has fallen from its peak of $191 in April 2007. Trust me: there' s no room for Eddie & Company to continue to take the hit.

Ultimately, Kmart will probably disappear from the retail landscape all together by 2011 or 2012. Sears may not be far behind.

HOME DEPOT

Depot remains the 2nd largest retailer in the world. With 2,400 stores in North America, the retailer is still in a position of power. That power is, however, shrinking. While the Orange box shuttered 15 stores this year, rival Lowe's companies (full disclosure: I work for Lowe's), continued to expand its footprint with the opening of 120 new stores.

Depot's problems run deep. Many of their stores are older, more cluttered, and uninviting. Their associates appear to be unenthused about their jobs. They've been beaten down so much and tasked so heavily, there is little time for customer service.

As Lowe's continues to capitalize on its strength of customer service, while increasing their footprint, Home Depot will be further squeezed during the difficult economic environment.

Stock Price: $19.06. My assessment: While some would disagree, I believe Depot will close 25-35 underperforming units in 2009. CEO Frank Blake has said he does not forsee further store closures beyond the 15 shuttered in May. Still, don't be surprised if throughout the year a few stores here and a few stores there quietly get removed from the landscape. While they are still much larger than smaller rival Lowe's .... their problems far outweigh their qualities right now. Righting this big ship will be tough in a small channel.

TOMORROW: THE RETAIL WINNERS.

Randy Gupton, fivesecondstoair.blogspot.com